With the oil price falling, and world stock markets in a funk, The Motley Fool looks at buying opportunities.
Do the Big Oil companies offer promising investments for Fools with a taste for energy?
My candid contention is that, in a world of spreading political upheavals, resource nationalism, and rapidly increasing technological challenges, they certainly do. Quite simply, the major integrated companies are able to benefit from geographic dexterity to reduce their assets in areas of (perhaps politically) difficult operations — e.g., Venezuela — in favour of concentrations in more favourable locations, such as Australia.
A cheery season
If you're in agreement thus far, the final (and key) task is to identify which member of the group appears to be most compelling.
Australia is rich in natural resources, but short on large, pure-play oil companies. Companies like BHP Billiton (ASX: BHP), Carnarvon Petroleum (ASX: CVN), Oilex (ASX: OEX), Beach Energy (ASX: BPT), AWE Limited (ASX: AWE) and Tap Oil (ASX: TAP) all have oil interests, but they aren't true Big Oil companies. For them, we have to look abroad.
Without beating around the bush, my first choice goes to the group's big enchilada, ExxonMobil. Not far behind, however, is Chevron, itself a well-managed company that is adding to its own positive record virtually around the world. Beyond that, I'm intrigued by a vastly improved Royal Dutch Shell. All companies trade on U.S. stock exchanges, and as such can be bought easily and cheaply via your favourite local online broker.
How have I arrived at my rankings?
Let's begin by looking briefly at the results just reported by the big integrated companies. Exxon produced a solid quarter, including a 41% year-over-year profit increase, while Chevron turned in a slightly higher 43% earnings hike. Exxon, however, was able to raise its production level by an impressive 10%, while Chevron's output slid by 2.2%, a result of production-sharing arrangements with foreign governments that trimmed the company's share of production as oil prices increased.
Meanwhile Shell bumped up its year-over-year earnings by 56% on a 2% boost in production, much of which was attributable to Qatargas 4 coming on stream, along with an expansion of another project in Canada.
Looking specifically at several of the strengths inherent in ExxonMobil, the company clearly provides optimum geographic diversity through its activities in more than 100 new oil and gas development projects spread across more than 40 countries.
Since 2000, such diverse locations as the Middle East, the Gulf of Mexico, West Africa, Australia, and the Caspian have yielded more than 2 billion oil equivalent barrels.
In January, following years of operating success — accompanied by frequent political tension — in developing the Sakhalin-1 project on the aforementioned Sakhalin Island, Exxon signed an agreement with Russian oil company OAO Rosneft to jointly develop the Tuapse Trough area of the Black Sea. The area is thought to contain about 7.3 billion barrels of oil equivalent.
In the U.S., Exxon last year completed the $41 billion acquisition of XTO Energy, which, with 45 trillion cubic feet of gas (primarily in the nation's unconventional plays) instantly placed ExxonMobil atop the industry in U.S. natural gas production and played a major role in last quarter's year-over-year output growth. Beyond that, the company has combined its own exploration and production capabilities in unconventional plays with those it acquired from XTO to initiate shale drilling and fracking in northern Germany.
The company has also developed a concentration in manufacturing and transporting liquefied natural gas. For instance, Exxon is participating in joint ventures that transport LNG from Qatar to Asia.
None of the company's successes would have been possible, however, without its acknowledged technical superiority. Its projects around the world have been designed and supported by ExxonMobil Upstream Technical Computing Company. Indeed, ExxonMobil developed and is constantly refining 3-D seismic imaging, which has vastly increased the likelihood of successful drilling efforts both on land and offshore.
Foolish bottom line
By now, despite perhaps fending off queasiness resulting from watching the week's rollercoaster market, you've likely noticed that ExxonMobil has been at least temporarily passed by Apple for the top spot in market capitalisation.
Both are solid companies, but its important to keep in mind that, unrealistic fetishes about rapid development of green energy notwithstanding, oil and gas will likely continue to provide more than half of our energy needs for decades to come.
If you're looking for more energy ideas you can buy now, check out The Motley Fool's free report, "The Best Stock For $100 Oil". In it, Fool analysts detail a company to profit from the global energy boom. Click here to grab a copy.
This article was originally written by David Lee Smith. It has been updated. Motley Fool staff and freelancers may have interests in any of the stocks mentioned in this report. These interests can change at any time. The Motley Fool has a living, breathing disclosure policy.